Companies and organizations have been aggressively seeking to control spending on indirect goods and services for many years. Existing methods and systems to control spending have often been less than adequate. Often times, the failure to adequately control spending is due to the lack of appropriate technological infrastructure in an organization, lack of centralized global or company wide procurement procedures, and/or the lack of or poorly codified penalty systems for enforcing desired procurement behaviors and processes.
Companies and organizations typically have approved vendors and suppliers for goods and services. The intent is that by purchasing goods and services from a limited set of approved vendors and suppliers, companies and organizations receive pre-negotiated, discounted prices for those same goods and services, which typically are substantially less than the prevailing market prices for those same goods and services. Although in some cases employees may follow an organization's preferred procurement procedures, in many cases employees do not.
There are a variety of situations where an organization's preferred procurement procedures are not followed, either inadvertently or intentionally. For example, necessary goods or services may have been exhausted and employees faced with pressing deadlines may feel it is too time consuming or inconvenient to follow the established procurement process, so the employees purchase goods and services in a manner that is in violation of standard procurement procedures. Alternatively, an employee or department may not be entirely informed about a company's procurement procedures and inadvertently purchase needed goods or services in violation of the procurement procedures.
Other reasons that employees or departments may purchase outside the normal procurement procedures include personal or departmental biases for certain goods or services, established personal or departmental purchasing habits, historical relationships with certain suppliers other than those selected by the organization, or belief and reliance on an idea that the end users are better educated to make purchase decisions on certain specialized goods and services.
Depending on the size of an organization or company, purchase of goods and services outside of standard procurement procedures, from non-approved suppliers, can result in an organization paying substantially more for those goods and services than would have been paid through established company procurement procedures, from approved suppliers. In the aggregate, the purchase of goods and services outside normal procurement procedures leads to higher costs for the organization, a direct result of the loss of savings from discounted prices which would have been realized, had approved procedures had been followed. The higher cost of good and services in these cases can be due to the purchases of the goods and services at retail prices, unrealized savings that could have been achieved by negotiating discounts for meeting volume thresholds with preferred suppliers or vendors, and/or penalties for not meeting minimum contractual volume commitments. The higher costs paid for goods and services have a detrimental impact on an organization's operating expenses.
Further, continued buying of goods and services in violation of a company's procurement policies and procedures could lead to diminished morale and productivity for those employees or personnel in a department charged with carrying out the purchasing needs of the company, e.g., a purchasing department.
There is thus a need for an improved and efficient procurement method and system where individuals and departments with purchasing authority in an organization are motivated and encouraged to follow and use designated procurement processes and procedures to procure designated goods and services from preferred suppliers and thereby maximize an organization's use of funds and resources.